Financial District

The art of riding the short-term/long-term transportation funding teeter-totter

By John Latta

A report from the National Transportation Policy Project says creating jobs in the transportation infrastructure is a good thing — but maybe not as good as we think, if it fails to bring long-term economic revival.

The report comes from the Bipartisan Policy Center and the authors are Douglas Holtz-Eakin, president of the American Action Forum and former director of the Congressional Budget Office, and Martin Wachs, senior principal researcher at the RAND Corporation and professor at the University of California-Berkeley.

“Short-term job creation, while vitally important, must be viewed within the context provided by a longer-term view,” say the authors. “Over the long term, higher productivity — the ability to generate more output and income from each dollar of capital or hour of work — is the key to higher labor earnings and improved standards of living.”

The authors argue that while transportation investment will always create jobs, its actual effect on our economy — and eventually the long-term future of those working in the industry and in those newly created jobs — is only positive if the productivity metric measures positively.

Last month’s Financial District in these pages reported that a new McKinsey Global Institute report noted that productivity was the key factor in reigniting growth and renewing the American economy.

Different investments in transportation can have different impacts, and short-term job increases may not become the basis for long-term economic recovery, the authors claim. “Poorly-targeted transportation dollars represent a wasted opportunity that the country can ill afford given its current fiscal predicament,” say the authors.

So short-term job creation is not, they argue, automatically a good thing if we judge investments by their long-term value.

“Simply assuming that any transportation investment will have positive stimulative effects and will produce long-term gains for the economy is not a sound basis for investment.” The two authors basically call for a form of lifecycle cost analysis of any transportation investment, ending with the selection of those projects that promise better “returns” on the investment.

One of the problems identified by the authors is the uncertainty of the “multiplier effect.” Estimates of how much a given project or investment means to long-term economic success, how many ripples it sends out over the economic pond, how many jobs it creates, tend to “carry substantial uncertainty,” to use their words. “Generally they are not purely data-driven; rather they rely on judgments and assumptions, and may not take into account aspects of the structure or timing of an investment that would have an impact on its actual multiplier effects.”

This uncertainty about how many jobs will actually be created by a specific transportation investment too often muddy the waters when it comes to assessing the long-term value of the investment and make it difficult to compare to other possible transportation uses of the funding involved.

Cited examples of long-term benefits from transportation infrastructure investment include improved efficiency and productivity brought about by reduced costs associated with congestion, environmental damage and accidents on our roads.

But the authors make it clear they believe you can have your cake and eat it too. Short-term job creation can be a part of long-term economic recovery if it’s done right, and that is the core of their case. But to achieve both goals, we must approach transportation spending in a fundamentally different way than we have in the past, they say. To do this, they recommend these policy changes:

1) Borrowed funds should not be put into existing channels for transportation spending in an effort to increase short-term employment. We should not put any money — much less borrowed money — into programs that provide questionable job-creation and long-term economic benefits.

2) Funding for transportation infrastructure that is intended to create jobs should focus on investments that are “shovel-ready” and provide long-term benefits. These are the investments that can immediately help ease unemployment while also building our economic future.

3) Federal transportation policy should be flexible on the “how” while being specific about outcomes. We need to focus more on accountability for the specific outcomes we want to achieve — economic growth, job creation — rather than on the strategies used to achieve them.

Let Them Use Spoons

Travelling in a far-off region of the world, iconic American economist Milton Friedman was shown work on a huge roadbuilding project by his proud hosts. A vast group of laborers were moving earth with shovels, no big earthmoving iron in sight. He asked the obvious question and was told that if massive machinery was used, it might be faster, but there would be fewer jobs created in the construction industry. Ah, says Friedman, if it’s job creation you want, why not use spoons instead of shovels?